oversight

The Child Abuse Prevention Council of Sacramento, North Highlands, California, Did Not Adequately Administer Its Healthy Homes Initiative Grant

Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-07-17.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                                   Issue Date
                                                                          July 17, 2006
                                                                   Audit Report Number
                                                                          2006-LA-1013




TO:         Jon L. Gant, Director, Office of Healthy Homes and Lead Hazard Control, L



FROM:       Joan S. Hobbs, Regional Inspector General for Audit, 9AGA

SUBJECT: The Child Abuse Prevention Council of Sacramento, North Highlands,
           California, Did Not Adequately Administer Its Healthy Homes Initiative
           Grant


                                   HIGHLIGHTS

 What We Audited and Why


             We audited the Child Abuse Prevention Council of Sacramento (Council) in
             response to a request from the U.S. Department of Housing and Urban
             Development’s (HUD) Office of Healthy Homes and Lead Hazard Control.

             Our audit objectives were to determine whether the Council administered its
             Healthy Homes Initiative grant in accordance with HUD requirements and its
             grant agreement. More specifically, our objectives were to determine whether (1)
             grant expenditures were eligible and supported by adequate documentation, (2)
             the Council had implemented adequate financial management and record-keeping
             systems, and (3) the Council accomplished its grant goals.

 What We Found


             The Council did not adequately administer its Healthy Homes Initiative grant. As
             a result, $936,879 of the $1,027,477 in payment (reimbursement) requests
                 submitted to HUD were for ineligible and unsupported costs.1 The Council also
                 failed to implement and maintain an adequate procurement process, develop an
                 adequate financial management system, or meet its grant performance objectives.


    What We Recommend


                 We recommend that HUD require the Council to repay it from nonfederal sources
                 $140,264 in ineligible expenses and $376,390 in unsupported expenses (for which
                 reimbursement was previously received from HUD) unless it can provide
                 adequate supporting documentation. Additionally, we recommend that HUD not
                 pay the Council for outstanding reimbursement requests, consisting of $210,576
                 in ineligible expenses and $209,649 in unsupported expenses, unless it can
                 provide adequate supporting documentation. Finally, we recommend that HUD
                 deobligate all remaining grant funds including ineligible costs, any unsupported
                 costs that cannot be documented, and the $472,523 unused balance remaining on
                 the original $1.5 million grant.

                 We also recommend that HUD not award the Council additional funding until it
                 has implemented adequate financial management and procurement systems and
                 can provide evidence that it has developed the organizational capacity to carry out
                 a HUD grant.

                 For each recommendation without a management decision, please respond and
                 provide status reports in accordance with HUD Handbook 2000.06, REV-3.
                 Please furnish us copies of any correspondence or directives issued because of the
                 audit.


    Auditee’s Response


                 We provided the Council a draft report on May 18, 2006, and held an exit
                 conference with the Council’s officials on June 08, 2006. The Council provided
                 written comments on June 23, 2006. It generally disagreed with our report.

                 The complete text of the auditee’s response, along with our evaluation of that
                 response, can be found in appendix B of this report.




1
  $90,598 in claimed costs was determined to be eligible and fully supported. The Council has received
reimbursement from HUD for only $606,125 of the claimed costs and is awaiting reimbursement for the other
$421,352. The $606,125 is the sum of nine individual reimbursed drawdowns, while the $421,352 includes two
prior rejected drawdowns.


                                                      2
                             TABLE OF CONTENTS


Background and Objectives                                                    4

Results of Audit
Finding 1: The Council Claimed Reimbursement for $936,879 in Healthy Homes   5
Initiative Grant Costs That Were Ineligible or Unsupported
Finding 2: The Council Did Not Meet Its Contract Performance Requirements    16

Scope and Methodology                                                        20

Internal Controls                                                            21

Appendixes
   A.   Schedule of Questioned Costs and Funds to Be Put to Better Use       23
   B.   Auditee Comments and OIG’s Evaluation                                24
   C.   Criteria                                                             83
   D.   Schedules of Ineligible and Unsupported Expenses                     85
   E.   Grant Agreement: Statement of Work                                   87




                                              3
                      BACKGROUND AND OBJECTIVES

The Healthy Homes Initiative is authorized under the fiscal year 2000 Appropriations Act and
builds upon the U.S. Department of Housing and Urban Development’s (HUD) existing
activities regarding housing-related health and safety issues, including lead hazard control,
building structural safety, electrical safety and fire protection, and to address multiple childhood
diseases and injuries related to housing in a more coordinated fashion. The program is designed
to develop, demonstrate, and promote cost-effective preventive measures to correct multiple
safety and health hazards in the home environment that produce serious diseases and injuries to
children. The program provides funding for projects that demonstrate effective assessment and
intervention methods as well as for research, public education (demonstration), and outreach
efforts.

The Child Abuse Prevention Council of Sacramento (Council), located at 4700 Roseville Road,
North Highlands, California, incorporated in 1977 as a nonprofit organization. The Council was
awarded a Healthy Homes Initiative grant (CALHH007500) for $1.5 million as part of the year
2000 Healthy Homes Initiative grant awards. The grant agreement was executed in March 2001.
The nonprofit Council is organized to provide prevention, coordination, training, and community
education outreach services to assist at-risk families. Its stated purpose is to coordinate and
develop systems designed to prevent or effectively respond to situations of child abuse, neglect,
or abandonment. The Council operates using various grant sources obtained primarily from
federal, state, and local agencies.

The Council created the California Alliance for Prevention (Alliance) in 1999 as a cost-efficient
prevention program, implementing home visitation, family resource centers, and AmeriCorps
members across numerous counties in California. The Healthy Homes Initiative was integrated
into the Alliance model to provide greater access to the target population. Training, home visits,
and family resource centers were supposed to provide education, prevention, and training on
topics such as asthma awareness, lead-based poisoning, and a healthy home environment.

Our audit objectives were to determine whether the Council administered its Healthy Homes
Initiative grant in accordance with federal requirements and its grant agreement. More
specifically, our objectives were to determine whether (1) grant expenditures were eligible and
supported by adequate documentation, (2) the Council had implemented adequate financial
management and record-keeping systems, and (3) the Council accomplished its performance
objectives.




                                                 4
                                      RESULTS OF AUDIT

Finding 1: The Council Claimed Reimbursement for $936,879 in
Healthy Homes Initiative Grant Costs That Were Ineligible or
Unsupported
The Council submitted reimbursement requests to HUD for $936,8792 for grant costs that were
ineligible ($350,840) or unsupported ($586,039). We attribute the Council’s request for
reimbursement of these significant ineligible and unsupported costs to inadequate knowledge of
Healthy Homes Initiative requirements and responsibilities and related federal rules and
regulations, a failure to adopt and implement appropriate procurement policies and procedures,
and a failure to implement an adequate financial management system. These deficiencies
prevented the Council from fully meeting HUD’s goals of providing education, prevention, and
training to target families (see finding 2).



    The Council Claimed $257,500
    in Ineligible AmeriCorps
    Training Fees



                 Ineligible AmeriCorps Fees

                 The Council claimed $329,500 in AmeriCorps training fees. This represented a
                 claimed fee of $500 for each time (659 times) an AmeriCorps member attended a
                 grant-related training session. However, based upon our analysis of the Council’s
                 records, $257,500 of the claimed fees was ineligible. The ineligible AmeriCorps
                 fees related to members who did not fulfill their AmeriCorps duties required by
                 the Healthy Homes Initiative grant agreement. Only 144 individuals who
                 completed all four training sessions related to the grant (asthma awareness,
                 secondhand smoke, home environment, and lead-based poisoning) were eligible
                 for the $500 training fee. Applicable funding eligibility for the 144 individuals
                 who completed the contractual requirements was only $72,000, not the $329,500
                 claimed by the Council–a difference of $257,500. A summary of the claimed fees
                 is outlined below.




2
  The Council’s total Healthy Homes Initiative grant was for $1.5 million. The Council claimed and submitted
reimbursement requests to HUD for a total of $1,027,477. This left an unclaimed/unused grant balance of
$472,523.


                                                        5
                    Training
                    sessions Amount submitted for Payment received Awaiting decision:
                    claimed    reimbursement         from HUD         reimbursement
                      659    $           329,500 $          191,200 $          138,300

                 The Council misinterpreted the grant agreement and inappropriately claimed a
                 $500 fee each time an AmeriCorps member attended a training session. While the
                 grant agreement allows for a $500 training fee3, it specifically states that the $500
                 fee is per member and not per training session attended. The grant agreement
                 identifies the $500 fee as

                      •    Part of direct salaries,
                      •    Payment for an AmeriCorps member’s total time spent on the grant,
                      •    Per AmeriCorps member, not per training session attended, and
                      •    A one-time payment for each eligible AmeriCorps member.

                 To be eligible for the $500 fee, an AmeriCorps member would have had to
                 complete all four training sessions (as required in the grant agreement’s statement
                 of work), thus fulfilling the training objectives of the grant. The grant agreement
                 clearly requires AmeriCorp volunteers (home visitors and family resource center
                 aides) to be fully trained in all four HUD related topics in order to become
                 trainers and effectively execute community outreach. As previously stated, only
                 144 AmeriCorps members completed these contract requirements. Accordingly,
                 eligible training fees for this contract provision totaled only $72,000 ($500 x 144),
                 not the $329,000 claimed by the Council.


    The Council Did Not Comply
    with Federal Procurement
    Standards


                 Federal procurement standards are integral to the grant process as they provide
                 assurance that contractors are acquired in a sound, competitive, and fair manner.
                 HUD and Office of Management and Budget Circular A-110, “Uniform
                 Administrative Requirements for Grants with Institutions of Higher Education,
                 Hospitals, and Other Non-Profit Organizations,” requires grant recipients to
                 establish procurement and contract management policies and procedures to ensure
                 that materials and services are obtained in an effective manner and in compliance
                 with federal rules and regulations (see appendix C).




3
 While the $500 fee is not expressly written in the grant agreement, the grant agreement budgeted amount was
derived from the grant application which gives a clear explanation of the $500 AmeriCorps fee.


                                                        6
            The Council failed to establish and maintain written procurement and contract
            monitoring procedures when obtaining and managing contracts for training,
            evaluation, and consulting services. As a result, its procurement actions and
            contract monitoring procedures did not meet the requirements of its grant contract
            with HUD. Specifically, the Council

                • Did not perform a cost analysis for any of its contracts or related
                  procurement actions,
                • Did not complete a competitive bid process to obtain contractual services
                  when warranted,
                • Did not provide explanations for the lack of competition for all of its
                  procurement actions,
                • Contracted with one contractor (Minicucci Associates) based upon
                  previous relationships and without an approved budget,
                • Obtained subcontract services from four contractors without obtaining
                  required prior HUD approval,
                • Entered into service contracts/agreements to provide services that were
                  already being provided under other contracts,
                • Made payments on service contracts based upon vague and undocumented
                  billings submitted by its contractors,
                • Made duplicate payments to a contractor, and
                • Could not explain or document payments made to one
                  consultant/contractor.

            These weaknesses in the Council’s procurement and contract monitoring
            procedures resulted in the payment and subsequent claim to HUD for $55,327 in
            ineligible consultant/contract expenses and $264,455 in claims for undocumented
            contract service payments.


Ineligible Consultant/Contractor
Payments of $55,327 Were
Submitted to HUD for
Reimbursement


            The Council submitted reimbursement requests to HUD for $55,327 in ineligible
            consultant/contractor expenses (see appendix D). The Council has received
            reimbursement from HUD for only $1,925 of this requested amount. These
            expenses related to four consultants/contractors whose services were obtained by the
            Council without obtaining prior HUD approval, as required by Office of
            Management and Budget Circular A-110, subpart C.25.c.8 (see appendix C), and to
            another contractor (Minicucci Associates) that received a duplicate payment of
            $3,640 (a request for reimbursement of this duplicate payment was submitted to
            HUD).


                                             7
      The grant budget provided for and listed five approved contractors with a budget of
      $508,909. However, the Council, without notifying HUD and obtaining its
      approval, unilaterally revised its budget by enlisting the aide of four additional
      consultants/contractors. The Council acquired the services of all four
      consultants/contractors without going through a competitive procurement process.
      Since required HUD approval was not obtained, the payments to these contractors
      are not eligible under the grant agreement. In relation to another consultant, LPC
      Consulting, the Council could provide no documentation or explanation relating to
      the $1,925 payment made to the firm; accordingly, the costs are not eligible under
      the grant.

      Over and above the failure to obtain required HUD approval and obtain the services
      on a competitive basis, other significant problems were noted with these contracts,
      including

          •   The services of Performance by Design and Kronick Consulting were
              obtained to perform evaluation, consulting, and training. However, the
              Council had already executed contracts with three other contractors to
              provide similar training and evaluation services.
          •   Only Performance by Design and Minicucci Associates had an executed
              contract with the Council. However, these contracts were vague and had
              no specific work statements to govern them. There were no contracts or
              other agreements with the other consultants/contractors, and they were
              paid simply based upon billings submitted.
          •   All five contractors received ineligible payments resulting from non-
              HUD-related activities and/or inadequate supporting documentation. For
              example, one contractor was routinely paid for conducting conflict
              resolution training for work completed on the Council’s Birth and Beyond
              program, and for travel that was not related to the grant.
          •   Documentation supporting claimed costs was often vague and did not
              clearly indicate how the costs were related to the grant.

      Ineligible costs resulting from the Council’s ineffective procurement actions are
      summarized below.

                        Ineligible amount
     Contractor/          submitted for         Amount     Awaiting decision on
      consultant         reimbursement        reimbursed     reimbursement
   LPC Consulting     $               1,925 $        1,925 $                    0
Performance by Design                37,413              0                37,413
 Kronick Consulting                   9,450              0                 9,450
     Office Team                      2,899              0                 2,899
 Minicucci Associates                 3,640              0                 3,640
                      $              55,327 $        1,925 $              53,402



                                       8
    Unsupported Claims of
    $264,455 Were Submitted for
    Payments Made to
    Consultants/Contractors


                 Contrary to Office of Management and Budget Circulars A-87, A-110, and A-122
                 (see appendix C), the Council expended and claimed reimbursement for $264,455
                 in payments made to consultants/contractors4 that were not adequately supported
                 (see appendix D). Based on grantee records, these contractual expenses were as
                 follows:

                                                                    Received          Awaiting
                          Consultant/contractor                  reimbursement     reimbursement
                            service provided                   December 10, 2000 - April 1, 2003 -
                                                                 March 31, 2003    March 14, 2004
                      American Lung Association
                  (provided training services for asthma
                                                         $                       81,294 $                27,881
                   awareness, secondhand smoke, and
                           home environment)
                  Sacramento County Department of
                      Health and Human Services
                                                                                 58,721                  53,086
                   (provided training services for lead-
                            based poisoning)
                     Minicucci Associates (provided
                           evaluation services)                                       0                  43,473
                                                         $                      140,015 $               124,440

                 The American Lung Association and Sacramento Health and Human Services
                 submitted invoices that only listed the budget, current period expenses for each
                 budgetary line item, and cumulative expenses for each line item. The invoices did
                 not provide specific data or documentation to support the eligibility of the
                 expenses claimed for each line item total. Accordingly, the eligibility of the costs
                 claimed under the contracts could not be determined. Office of Management and
                 Budget circulars require that contractors provide the same level of support as the
                 grantee (see appendix C). This would include providing sufficient documentation
                 to allow for a determination of the eligibility of claimed costs under the applicable
                 contracts. Supporting documentation is especially critical for a grantee or
                 contractor who deals with numerous organizations simultaneously. The
                 supporting documentation for the expenses is not only important for
                 reimbursement analysis, but is critical in ensuring that the contract was adhered to
                 and expenses charged were for services agreed to in the contract.

4
  These three subcontractors were approved and identified in the grant agreement. Two other subcontractors were
identified and approved in the grant agreement, but their services were never used.


                                                        9
            The contract between the Council and Minicucci Associates did not include a
            budget and failed to detail or list services and related costs that were to be
            provided under the contract. Minicucci Associates submitted billing invoices that
            listed charges for salaries, a 55 percent overhead rate, a general and
            administration rate of 5 percent, and at times claimed subcontractor costs. Since
            the contract did not contain specific details related to services to be provided or an
            approved budget, the invoices should have been accompanied by support detailing
            the work performed and how the salaries and overhead costs were justified and
            related to the grant agreement.


The Council Failed to Establish
an Adequate Financial
Management System


            A good financial management system is integral to a grantee’s ability to
            adequately administer its grant program. HUD and Office of Management and
            Budget Circular A-110, subpart C, “Standards of Financial Management
            Systems,” requires grant recipients’ financial management systems to provide
            records that adequately identify the source and application of funds for federally
            sponsored activities (see appendix C). These records should contain information
            pertaining to federal awards, authorizations, obligations, unobligated balances,
            and outlays. However, the Council failed to implement a system that met the
            minimum requirements of Office of Management and Budget Circular A-110.
            Weaknesses in the Council’s financial management system, as discussed below,
            contributed significantly to its inability to properly account for its grant-related
            transactions.

            While the Council purchased accounting software for its operations, it did not

                •   Adequately implement the software to ensure that costs were accounted
                    for consistently,
                •   Track grant expenses,
                •   Create accurate reports,
                •   Reconcile actual expenses to expenses claimed, and
                •   Correctly reconcile expenses billed to HUD for reimbursement to the
                    accounting databases.

            We also noted that during our audit period, the Council was operating using three
            different accounting databases. The databases all contained various levels of
            information and were not consistent with each other in the information pertaining




                                             10
           to the Healthy Homes Initiative. Because of these weaknesses and inconsistencies
           in the Council’s financial management systems, we had to perform our financial
           analysis by reviewing all of the expenses for which we could obtain support.

           Problems with the Council’s financial management systems were compounded by
           its lack of personnel with an adequate accounting and financial background to
           properly implement and maintain its overall financial records. The former deputy
           director of finance and operations and former accounting manager lacked the
           appropriate background, education, and training to implement and maintain a
           financial management system for a nonprofit organization receiving money from
           multiple grant sources.

           In addition, the Council did not have written accounting procedures to help in
           ensuring that costs charged to the HUD grant were allowable, allocable,
           reasonable, and directly related to the HUD grant. The Council’s lack of
           accounting procedures also contributed to a weak internal control system.
           Specifically, the Council

               •   Did not have a consistent process for purchases,
               •   Allowed for reimbursements without prior approval,
               •   Did not have consistent cost allocations,
               •   Appeared to randomly charge expenses to the HUD grant,
               •   Allowed accounting staff to make changes to the general ledgers without
                   management approval,
               •   Provided minimal oversight to the accounting and finance department,
                   and
               •   Maintained inadequate accounting records that did not support claimed
                   grant costs.

           As discussed below, the Council’s lack of an adequate financial management
           system and its poor internal control policies resulted in the charging of $270,478
           in undocumented/unsupported costs and $89,119 in ineligible costs to the grant.


The Council Claimed $270,478 in
Unsupported Payroll Expenses

           None of the Council’s claimed payroll expenses (salaries and fringe benefits)
           totaling $270,478 were supported, as applicable time records failed to document
           time worked on the Healthy Homes Initiative grant. Office of Management and
           Budget Circular A-122 (see appendix C) requires the preparation of time records,
           prepared after the completion of work, which document hours worked each day
           on a grant, separate from other organization activities. Based on Council records,
           payroll expenses of the 16 employees who charged time to the grant are as
           follows:



                                            11
                                                                 Received                   Awaiting
                                                              reimbursement              reimbursement
                                Position
                                                            December 10, 2000 -          April 1, 2003 -
                                                              March 31, 2003           December 31, 2003
                 Community development /
                 Training manager                        $                    6,998 $                     4,957
                 Trainer                                                                                  1,418
                 Trainer                                                                                  4,250
                 Trainer                                                      7,481                      17,626
                 Trainer                                                      3,888                       2,187
                 Trainer                                                      1,038                           8
                 Trainer                                                        636                      31,554
                 Training coordinator                                         2,224
                 Training coordinator                                                                     7,143
                 Training coordinator                                       10,487
                 Program manager                                                                        17,554
                 Supervisor-Arden                                                                        5,025
                 Accounting manager                                                                     35,004
                 Accounting clerk                                                                          615
                 Trainer                                                    14,065                       4,250
                 Temps                                                       3,553                      16,980
                 Other                                                                                     729
                           Total salaries                $                  50,370 $                   149,300
                 Fringe benefits                                            16,800                      54,008
                    Total salaries and benefits          $                  67,170 $                   203,308
                  Grantee application of HUD
                      advance (appendix D)                                149,3005                   (149,300)
                               Total                     $                 216,470 $                    54,008

                 It should also be noted that the Healthy Homes Initiative grant agreement and
                 approved budget allocated grant money for only three employees–program
                 manager, training coordinator, and administrative analyst. The budget did not
                 allocate or provide funding for trainers, accountants, or temporary staff.




5
 $149,300 of a $150,000 grant advance (received in September 2001) was applied to direct labor for the period
April 1- December 31, 2003. The $149,300 is added to the total amount reimbursed for unsupported direct labor.


                                                       12
           The Council receives significant grant funding from sources other than HUD. In
           years, 2001, 2002, and 2003, the Council’s audited financials show it received less
           than 6.5% percent per year of its funding from HUD. In the Council’s financial
           statements, the Healthy Homes Initiative grant is considered a minor funding source.
           Between 2000 and 2004 (except for 2001), the Council received at least seven grants
           from different organizations. Given the Council’s diverse funding sources and its
           broad activity base, salaries and fringe benefits should be supported by detailed time
           records.

The Council Claimed $89,119 in
Other Ineligible and Unsupported
Expenses

           The Council charged the grant $38,013 for other ineligible expenses and $51,106
           for other unsupported expenses. The ineligible expenses represent non-HUD
           related costs for companywide postage, travel, tax services, copying services,
           office supplies, computer equipment, and equipment rental and maintenance. On
           more than one occasion, the Council charged ineligible expenses for meals,
           plants, flowers, and office furniture to the HUD grant. The ineligible direct labor
           and fringe benefit costs represent expenses incurred after the March 14, 2004,
           grant termination date.

           Additionally, the Council failed to submit an indirect cost plan for HUD approval
           as required by Office of Management and Budget Circular A-122 (see appendix
           C). Without an indirect cost plan, the Council carries the burden of supporting all
           costs as directly related to the HUD grant. However, it charged indirect costs,
           such as parcel shipments, postage, office supplies, equipment rentals, computer
           equipment, and communications charges, to the contract without documentation
           supporting their eligibility under the grant program. The Council also failed to
           maintain support for other direct costs charged to the HUD grant and rarely
           maintained documentation for travel, mileage, meals, and per diem costs charged
           to the grant that clearly linked the purpose of travel to the Healthy Homes
           Initiative grant. The ineligible and questioned costs are summarized below and
           listed in more detail in appendix D.




                                            13
                                        Received              Awaiting
                                     reimbursement         reimbursement
               Cost category                                                         Total
                                  December 10, 2000 -       April 1, 2003 -
                                     March 31, 2003        March 14, 2004
                                        Other ineligible expenses
             Direct labor         $                    0 $              6,448    $      6,448
             Fringe benefits                          0                    149            149
             Supplies                            13,203                 8,895          22,098
             Travel                                5,811                   451          6,262
             Other                                   125                2,931           3,056
                     Total         $             19,139 $              18,874    $     38,013
                                      Other unsupported expenses
             Supplies             $              13,434 $              14,566    $     28,000
             Travel                                1,740                5,725           7,465
             Other                                 4,731               10,910          15,641
                    Total         $              19,905 $              31,201    $     51,106
                                          Total                                  $     89,119


Conclusion


             The Council lacked the knowledge needed to administer its Healthy Homes
             Initiative grant in accordance with pertinent grant requirements and regulations.
             Additionally, it failed to establish and implement procurement and financial
             management systems and controls necessary to properly account for and manage
             its grant funds. These weaknesses resulted in the charging of more than $991,000
             in ineligible and unsupported costs to its grant program. Accordingly, HUD has
             no assurance that Healthy Homes Initiative funds were used only for authorized
             and allowable expenses.


 Recommendations


             We recommend that the director of the Office of Healthy Homes and Lead Hazard
             Control

             1A.    Require the Council to repay HUD from nonfederal sources the $119,200
                    it received for ineligible AmeriCorps training fees and deny payment of
                    the $138,300 in additional ineligible fees the Council has requested.




                                             14
1B.   Require the Council to repay HUD from nonfederal funds the $1,925 in
      ineligible consultant/contract fees for which it has received reimbursement
      and deny reimbursement of the additional ineligible consultant/contract
      fees of $53,402 identified in the finding.

1C.   Require the Council to provide support for the $140,015 in undocumented
      consultant/contractor fees for which it has been reimbursed by HUD and
      the additional $124,440 in similar undocumented fees for which payment
      has been requested from HUD but not received. If documentation cannot
      be provided, the Council should be (1) required to reimburse those fees for
      which reimbursement has been received and (2) denied payment for
      pending reimbursement requests that cannot be documented.

1D.   Require the Council to provide support for the $216,470 in undocumented
      salaries and fringe benefits charged to the grant and reimbursed by HUD
      and the additional $54,008 in unsupported salaries and fringe benefits for
      which reimbursement has been requested but not received. If
      documentation cannot be provided, the Council should be (1) required to
      reimburse HUD from nonfederal sources those salary expenses for which
      reimbursement has been received and (2) denied payment for any pending
      salary reimbursement requests that cannot be supported.

1E.   Require the Council to reimburse HUD from nonfederal sources the
      $19,139 in other ineligible costs for which it has received reimbursement
      and deny payment of the $18,874 in pending ineligible claims.
      Additionally, the Council should be required to provide support for
      $19,905 in other undocumented expenses for which it has received
      reimbursement and $31,201 in other undocumented expenses for which
      reimbursement has been requested from HUD but not received. If these
      expenses cannot be supported, they should be refunded to HUD or denied
      reimbursement as applicable.

1F.   Deobligate the $472,523 in unused funds remaining under the grant along
      with any other disallowed costs resulting from recommendations 1A
      through 1E.

1G.   Not award the Council additional funding until it can demonstrate that it
      has established and implemented written procurement policies and
      procedures that follow federal procurement standards and implemented a
      financial management and record-keeping system that meets federal
      requirements for grant recipients.




                               15
Finding 2: The Council Did Not Meet Its Contract Performance
Requirements
The Council did not execute its Healthy Homes Initiative grant effectively and efficiently,
resulting in a failure to meet the performance goals required by its grant agreement. Although
claiming to meet its grant training and outreach goals, the Council failed to implement an
effective community outreach education program, the real intent of the grant program. We
attribute the deficiencies to the Council’s lax attitude toward program implementation,
inadequate organizational capacity, and lack of policies and procedures relating to the Healthy
Homes Initiative. These conditions hindered the Council’s ability to create and maintain a
successful outreach and education program accessible to families throughout the 17 counties
targeted by the grant agreement.



    The Council Failed to
    Accomplish Its Performance
    Requirements


                 Sufficient organizational capacity, coupled with a clear and focused plan, is
                 integral to a grantee’s ability to adequately execute its grant program. The
                 statement of work, as part of the grant agreement, identifies a set of goals that can
                 be used as a measurement of successful grant implementation and completion.
                 The Council’s grant agreement laid out grant performance goals to be
                 accomplished throughout its three-year grant period, reaching at-risk families
                 across 17 targeted counties. However, these goals were not met.

                 Performance Goals

                 While the Council claimed it met all of its performance goals in its final report
                 submitted to HUD, supporting documentation, including training session sign-in
                 sheets and home visit record charts, did not support the Council’s claimed
                 performance accomplishments. Based on the grantee’s records, the Council failed
                 to achieve six6 of its performance goals (see highlighted cells in table below), as
                 shown below.




6
 The sixth goal, increase in blood testing for lead, was eliminated as a performance goal in December of 2003. The
Council cited barriers in tracking childhood lead testing and the inability to develop a consistent tracking tool.


                                                       16
 Performance category               Goal            Accomplished               Goal         Accomplished
Asthma                      24 training sessions        39              370 persons trained     442
Secondhand smoke            24 training sessions        30              370 persons trained     333
Home environment            24 training sessions        30              370 persons trained     340
Lead poisoning              36 training sessions        46              470 persons trained     560
Parents/adult caregivers                                                200 persons trained     307
Childcare providers                                                     100 persons trained      42
                                                                         2,100 home visits
Home visits                    700 families               548              700 per year         1399
                          Year 1: 13 centers        Accomplished
Distribution of materials Year 2: 17 centers
Teleconferencing            Year 1: 2 counties     Year 1: 3 counties
capacities                  Year 2: 4 counties     Year 2: 3 counties
                               Year 2: 5%
Increase of blood testing      Year 3: 10%          Goal eliminated

               While the table indicates that the Council met its “training session goals,” these
               goals are not very relevant to achievement of the overall grant goal of community
               outreach and education. Attendees at these training sessions could consist of
               more than 30 people or as few as three people. Accordingly, the goals related to
               the number of persons trained is of far greater importance as once trained, they
               are the primary means for conducting the principal grant objective, education and
               outreach programs in targeted counties.

               Healthy Homes Initiative Grant Execution

               The goal accomplishments shown above were not reflective of the effectiveness
               of the Council’s execution of its grant program. We identified deficiencies and
               irregularities in the methods by which the Council carried out grant activities that
               illustrate an ineffective and inefficient execution of the grant. For example, the
               Council allowed persons to attend the same training more than once, inflating the
               number of reported individuals receiving training but not adding to the usefulness
               of the program.

               The Council’s failure to effectively carry out its grant program is further
               demonstrated when its grant activities are analyzed on an annual basis over the
               three-year grant period. Of the 2,024 persons trained,

                   •   7 percent were trained in year 1,
                   •   14 percent were trained in year 2, and
                   •   79 percent were trained in year 3.




                                                   17
                 As shown in appendix E, the grant work statement envisioned/required
                 implementation of all goals throughout the three-year grant period, not just during
                 the last year of the grant.

                 In addition, using the home visitation recording charts, we identified serious
                 delays in home visit dates. Of the 1,399 home visits we were able to confirm, 91
                 percent were conducted in the final year of the grant. As shown below, the
                 number of home visits (the most important goal of the grant) during the first two
                 years of the program was almost nonexistent.

                                   Year                              Home visits             Percentage
                 Year 1 (April 01-March 02)                              1                      0.00
                 Year 2 (April 02 - March 03)                            6                      0.00
                 Year 3 (April 03 - March 04)                          1,272                    0.91
                 After March 15, 2004                                    64                     0.05
                 Undetermined7                                           56                     0.04
                                   Total                               1,399                    100

                 According to the Council’s home visitation model, home visits were to be
                 conducted weekly (at the most intense visitation scenario), with each family
                 receiving at least three home visits. However, the home visit recording charts
                 showed numerous instances in which consecutive home visits were conducted on
                 the same day or less than weekly. The results of such home visits are less
                 valuable, as they would not allow enough time for behavioral changes in the home
                 environment to be adequately tracked to see if the home education visits were
                 effective.

                 Lastly, the grant agreement required the Council to provide Healthy Homes
                 Initiative education, training, and outreach efforts across 17 counties in
                 California. However, of the 548 families who received home visits, we identified
                 386 who lived in Sacramento County. If 70 percent of the at-risk families
                 provided services under the grant lived in Sacramento County, it would appear
                 that the Council did not make a reasonable effort to provide outreach and
                 education across the other 16 counties.




7
 The undetermined home visits were supported by record charts that did not contain a date or year. Without a date
or year, we could not classify the home visits as having been conducted during the grant period.


                                                       18
Conclusion


             We attribute the Council’s failure to meet grant requirements to insufficient
             planning and a lack of procedures for effective program implementation. The
             Council neglected the Healthy Homes Initiative until the third year of the grant,
             while placing an emphasis on its larger, more significant programs. With such a
             long delay in grant execution, the Council sacrificed efficiency and effectiveness
             for production. It did not have a set of policies and procedures in place to assure
             that the grant was on schedule and being conducted in a manner that would reach
             at-risk families in a consistent, timely, and effective way. As a result, the Council
             did not fully meet the grant’s goals of providing education, prevention, and
             training to targeted families.

Recommendations


             We recommend that the director of the Office of Healthy Homes and Lead Hazard
             Control

             2A.    Not award the Council additional funding until it can demonstrate that it
                    has the organizational capacity to simultaneously execute multiple grant
                    programs.




                                              19
                        SCOPE AND METHODOLOGY

We performed the audit between September 2005 and December 2006. The audit generally
covered the period from December 10, 2000, through March 14, 2004. The grant was awarded
in March 2001 and included a cost allowability period beginning on December 10, 2000. We
expanded the scope as necessary. We reviewed applicable guidance and discussed operations
with management and staff personnel at the Council and key officials from HUD’s Office of
Healthy Homes and Lead Hazard Control. Our primary methodologies included

       •   Reviewing applicable HUD regulations at 24 CFR [Code of Federal Regulations]
           Part 84; Office of Management and Budget Circulars A-87, “Cost Principles for State,
           Local, and Indian Tribal Governments”; A-110, “Uniform Administrative
           Requirements for Grants and Agreements with Institutions of Higher Education,
           Hospitals, and Other Nonprofit Organizations”; and A-122, Cost Principles for
           Nonprofit Organizations” as well as the Super Notice of Funding Availability, dated
           February 24, 2000 (see appendix C).

       •   Interviewing appropriate HUD personnel and relevant grant files to obtain an
           understanding of Healthy Homes Initiative requirements and identify HUD’s
           concerns with the grantee’s operations.

       •   Reviewing the grantee’s policies, procedures, and practices.

       •   Interviewing key Council personnel.

       •   Reviewing past independent public accountants’ reports and prior HUD monitoring
           results.

       •   Reviewing available checks, invoices, and other supporting documents for the
           $1,027,477 in claimed grant-related expenditures ($606,125 reimbursed by HUD and
           $421,352 rejected by HUD).

       •   Reviewing employee timekeeping records.

       •   Reviewing sign-in sheets, training logs, course outlines, and course presentation
           materials.

       •   Reviewing healthy homes home visitation recording charts and AmeriCorps rosters.

       •   Reviewing contractor/consultant agreements and procurement files.

We conducted our audit in accordance with generally accepted government auditing standards
and included tests of management controls that we considered necessary under the
circumstances.



                                               20
                             INTERNAL CONTROLS

Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following objectives are being achieved:

   •   Effectiveness and efficiency of operations,
   •   Reliability of financial reporting,
   •   Compliance with applicable laws and regulations, and
   •   Safeguarding resources.

Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. Internal controls include the processes and procedures for
planning, organizing, directing, and controlling program operations. They include the systems
for measuring, reporting, and monitoring program performance.



 Relevant Internal Controls


              We determined the following internal controls were relevant to our audit objectives:

                      •   Policies and procedures to ensure grant expenditures were eligible and
                          adequately supported;
                      •   Policies and procedures to ensure contracts were awarded according to
                          federal procurement standards;
                      •   Policies and procedures to ensure adequate financial management and
                          record-keeping systems were in place; and
                      •   Policies and procedures to ensure grant performance goals were
                          achieved in an effective and efficient manner.

              We assessed the relevant controls identified above. A significant weakness exists
              if management controls do not provide reasonable assurance that the process for
              planning, organizing, directing, and controlling program operations will meet the
              organization’s objectives.


 Significant Weaknesses


              Based on our review, we believe the following items are significant weaknesses:

              The Council did not have adequate internal controls to reasonably ensure that




                                               21
•   Grant expenditures were eligibile and adequately supported (finding
    1).
•   Contracts were procured and awarded in accordance with federal
    procurement standards (finding 1).
•   Adequate financial management and record-keeping systems were in
    place (finding 1).
•   Grant performance goals were achieved in an effective and efficient
    manner (finding 2).




                        22
                                    APPENDIXES

Appendix A

               SCHEDULE OF QUESTIONED COSTS
              AND FUNDS TO BE PUT TO BETTER USE

     Recommendation number             Ineligible 1/      Unsupported       Funds to be put
                                                              2/            to better use 3/
                1A                           $257,500
                1B                            $55,327
                1C                                             $264,455
                1D                                             $270,478
                1E                            $38,013           $51,106
                1F                                                                 $472,523
               Total                         $350,840          $586,039            $472,523


1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or federal, state, or local
     policies or regulations.

2/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of audit. Unsupported costs
     require a decision by HUD program officials. This decision, in addition to obtaining
     supporting documentation, might involve a legal interpretation or clarification of
     departmental policies and procedures.

3/   “Funds to be put to better use” are quantifiable savings that are anticipated to occur if an
     Office of Inspector General (OIG) recommendation is implemented, resulting in reduced
     expenditures at a later time for the activities in question. This includes costs not incurred,
     deobligation of funds, withdrawal of interest, reductions in outlays, avoidance of
     unnecessary expenditures, loans and guarantees not made, and other savings. The
     $472,523 in funds put to better use represents grant funds that were not expended. The
     Council claimed and submitted reimbursement requests to HUD for a total of $1,027,477
     out of a total of $1.5 million. This left an unclaimed/unused grant balance of $472,523.
     We are recommending the $472,523 be deobligated for use on other HUD Office of
     Healthy Homes and Lead Hazard Control programs.




                                              23
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         24
25
Comment 1




            26
Comment 2




Comment 3




Comment 4




Comment 5




            Names have been redacted for privacy




                            27
Comment 6




            28
Comment 7




Comment 8




            29
Comment 9




            30
Comment 10




             31
Comment 11




Comment 12




Comment 13




             32
Comment 14




Comment 15




Comment 16




             33
Comment 17




Comment 18




Comment 19




             34
Comment 20



Comment 21




Comment 22




             35
Comment 23




             36
Comment 24




Comment 25




Comment 26


Comment 27




             37
Comment 28


Comment 29




Comment 30




Comment 31




Comment 32




             38
39
Comment 33




             40
Comment 34




             41
Comment 35




             42
Comment 36



Comment 37




Comment 38




Comment 39




Comment 40




             43
Comment 41



Comment 42




Comment 43




Comment 44




Comment 45




             44
Comment 46




             45
Comment 47




Comment 48




Comment 49




             46
Comment 50




             47
Comment 51




Comment 52




             48
Comment 53




             49
Comment 54




Comment 55




             50
51
Comment 56




             52
Comment 57


Comment 58




             53
Comment 59




Comment 60




             54
Comment 61




Comment 62




Comment 63




             55
Comment 64




             56
Comment 65




             57
58
59
60
61
62
63
64
65
66
67
68
69
                         OIG Evaluation of Auditee Comments

Comment 1   The HUD Office of Inspector General is a respected resource for HUD, Congress
            and the American public in ensuring the integrity, efficiency, and effectiveness of
            HUD programs and operations. While we recognize the vital role grant funding
            plays in the daily operations of non-profits, we have a public duty to independently
            review HUD programs, including grant recipients, and report our findings without
            bias. Our reviews are independent, objective, and are based solely on facts,
            documentation, and applicable rules and regulations. In keeping with the Office of
            Inspector General’s mission, our findings are made based solely on the results of our
            detailed and thorough audit work.

Comment 2   The Council claims it accomplished its goals in implementing an effective
            community outreach education program. However, our audit work identified
            numerous instances of program shortcomings, inefficiencies, and ineffectiveness
            (see finding 2). We recognize and appreciate the Council’s efforts in trying to
            achieve its performance goals and promote HUD’s mission. However, we
            respectfully disagree that “administrative technicalities” are trumped by the
            Council’s performance. The “administrative technicalities” referred to are
            controls put in place to ensure HUD grant funds are expended according to
            federal rules and regulations and on appropriate HUD related expenses.

Comment 3   The Council claims that the qualitative goals of the grant are not reflected in the
            audit’s conclusion. In fact, finding 2 is dedicated entirely to the Council’s grant
            performance and its qualitative milestones. The table on page 17 of the report
            illustrates the qualitative results of every performance goal, including those
            achieved and not achieved. The report clearly states that the Council “met its
            training session goals”, however, it also indicates the goals met are not indicative
            of a successful grant program. The OIG recognizes the importance of completing
            training sessions. However, we identified the goals regarding home visits and
            families reached of greater significance as they relate to the direct impact of the
            HUD grant.

Comment 4   The grant was not cut short or truncated by a HUD-imposed action. In response
            to the November 2003 HUD Remote Monitoring Report, the Council requested
            the grant performance period be reduced from March 14, 2004, to December 19,
            2003. In the same request, the Council acknowledged a less than acceptable level
            of performance. HUD accepted the reduced performance period, stating that the
            Council should no longer train individuals and should instead focus on reaching at
            risk families through home visits during the remaining months of the contract.
            Per the Council’s request, the grant was only reduced by three months. The
            Council agreed to accomplish 100 percent of the goals and objectives listed in
            Appendix E of the report. Pro-rating the goals to illustrate a more favorable
            accomplishment record would not be appropriate given that the grant period was
            truncated due to Council performance shortcomings.



                                             70
Comment 5   The exit conference is typically held five to seven days after the auditee receives
            the discussion draft audit report. We accommodated the Council’s timing
            conflicts by scheduling the exit conference on June 8, 2006, 21 days after the
            Council received the report (May 18, 2006). Typically OIG requires, written
            comments be received 15 days from issuance of the final discussion draft report.
            The original June 15, 2006, written comments deadline allowed 29 days for the
            Council to draft formal written comments. We are not responsible for, nor can we
            control at which point the auditee decides to enlist the aide of outside legal
            counsel.

Comment 6   We disagree with the Council’s claims that adequate time was not given to
            respond to the report. The OIG is concerned with reporting our audit results in a
            fair and balanced way, and meeting our obligation under Government Auditing
            Standards to consider the views of responsible officials. We have met that
            responsibility. Regarding the Council’s “due process,” our reports and
            recommendations are advisory. It is the responsibility of the addressee of this
            report to determine what action is to be taken on our recommendations and
            implement such actions in a manner that preserves the Council’s constitutional
            rights to due process. With the revised June 23, 2006, written comments
            deadline, the Council was given 37 days to respond. Additionally, OIG auditors
            kept the Council’s management apprised of findings and material information
            throughout the audit.

Comment 7   Claim reimbursement requests are routinely paid by HUD, unless red flags raise
            concerns regarding the allowability of claimed grant costs. When red flags, such
            as performance shortcomings, were raised, HUD immediately denied
            reimbursement requests. Given HUD and the OIG’s responsibility to review the
            financial and program performance of grant recipients, as deemed necessary, the
            Council was wrong to assume allowability was determined through grant
            payments.

            We strongly disagree with the Council’s claims that OIG considers administrative
            efficiency to be of paramount importance in the audit report process. While we
            do attempt to conduct our audits in the most efficient manner, we do not allow
            administrative efficiency to affect audit reporting. We believe the Council was
            given ample time throughout the audit to prepare for responding to the audit
            findings. Audit reports must be timely in order to be of maximum relevance. The
            OIG cannot modify its audit procedures to accommodate grantee representatives’
            vacations and time off.

Comment 8   The OIG appreciates the Council’s efforts to respond to the report in a timely
            fashion. During the exit conference and throughout the audit, the Council was
            given a description of the audit resolution process and is aware that the Council




                                             71
              will be contacted by HUD regarding resolution of the audit findings. The
              Council’s comments were reviewed and taken into consideration when issuing the
              final audit report.

Comment 9     Through legal deduction, the Council claims the grant agreement executed with
              HUD is appropriately interpreted using California contract law over federal law or
              the rules and regulations agreed to in the grant agreement. The first page of the
              grant agreement clearly lists rules and regulations that govern the grant
              agreement: Office of Management and Budget Circulars A-122, A-110, and A-
              133. When interpreting the grant agreement, as it relates to administration and
              cost eligibility, the preceding circulars should be the primary source for
              consultation.

Comment 10 We agree that the Government Technical Representative plays an important role
           in HUD grant administration. However, the Government Technical
           Representative is supposed to collect and review documentation received from the
           grantee. It would be impractical, considering government time and budget
           constraints, to expect a Government Technical Representative to conduct a
           continual audit of each grantee involved in a particular HUD program. The HUD
           representative would conduct more extensive reviews and possible site visits only
           when concerns are raised regarding the grantee’s performance.

Comment 11 The Council refers to handwritten notes on the grant agreement scanned and
           emailed to the Council by the OIG as evidence that HUD failed to take advantage
           of an opportunity to correct a problem. The handwritten notes on the grant
           agreement are a result of HUD reviews after the fact. The notes were part of a
           thorough review of the grant made when grant payments were rejected by HUD.

Comment 12 The Council is correct in its interpretation of the grant agreement. However, the
           Inspector General Act of 1978 gives the Office of Inspector General the authority
           to review the performance and financial aspects of HUD program participants.
           While the work is deemed as accepted, the OIG has the authority to review
           accepted products of works to make audit findings and recommendations.
           Additionally, accepted products of work do not imply that the work was
           accomplished efficiently and/or effectively.

Comment 13 Our audit focused on the grant operations of the Child Abuse Prevention Council.
           We have no comments regarding any reviews or statements pertaining to the
           performance of HUD employees as these are beyond our audit scope.

              As stated in comment 10, the HUD representative is tasked to review documents
              received from the auditee. When concerns are raised, more thorough reviews are
              conducted. Through a remote monitoring report, emails, and a high risk letter, the
              Council was notified of shortcomings and other grant management deficiencies.
              Additionally, the Council was also notified of financial shortcomings resulting in
              the rejection of payment vouchers.



                                              72
Comment 14 The Council misrepresents the words of an OIG Auditor. The statement “the
           Agreement is a little unclear” was used to describe to the Council’s legal
           representative how the statement of work needs to be viewed as a whole
           document with the grant agreement, not by itself. When reviewing the grant
           agreement, including the statement of work, it becomes clear that home visits
           were to be conducted three times for the same family, reaching 700 families, for a
           total of 2100 home visits. The Council clearly did not think the agreement was
           unclear as it referred to the 700 families and 2100 home visits in paragraph three,
           on page 13 of its written comments.

Comment 15 We disagree that the Council performed all things necessary and therefore is
           entitled to payment of the requested vouchers. While a significant portion of our
           audit findings refers to unsupported costs, the Council is incorrect in stating the
           OIG does not contend that expenses were not necessary. In fact, we do contend
           that some expenses were unnecessary and therefore, not allowable. Our audit
           identified numerous travel, supplies, and other expenses that were unnecessary
           and deemed ineligible. Further, Finding 1 identifies a large portion of
           AmeriCorps fees that were deemed ineligible, not because of documentation
           deficiencies, but because a majority of the AmeriCorps fees the Council charged
           HUD were not eligible grant costs.

Comment 16 We agree the Council should be reimbursed for “eligible” costs incurred in
           performing the grant activities. However, the costs must be incurred and
           documented in accordance with federal rules and regulations. Grant costs must be
           clearly identified and linked as HUD grant related.

Comment 17 The Council is incorrect in stating that costs incurred means “allowable costs”. A
           cost incurred and charged against the HUD grant does not mean that cost is
           allowable. The HUD representative has the authority to review and deem costs as
           eligible or ineligible. A cost is allowable only when it is applied and documented
           in compliance with Office of Management and Budget Circulars A-122 and A-
           110 and the grant agreement. We find no ambiguity in the terminology used in
           the grant agreement. The OIG is tasked with finding any instances of waste,
           fraud, and abuse. Accordingly, we are responsible for applying applicable federal
           rules and regulations to determine the allowability of costs.

Comment 18 Simply approving payment requests does not imply the costs associated with a
           particular payment are allowable and therefore, not eligible for further review and
           scrutiny. Beginning in June of 2003, HUD rejected payment vouchers because
           questions arose regarding the allowability of claimed grant costs. The Council
           was aware of HUD reviews prior to the OIG audit and was made aware of
           deficiencies throughout the audit review. Office of Management and Budget
           Circular A-110 allows HUD, the Inspector General, Comptroller General of the
           United States, or any of their duly authorized representatives, the right of timely




                                              73
              and unrestricted access to any books, documents, papers, or other records of
              recipients that are pertinent to the awards, in order to make audits, examinations,
              excerpts, transcripts and copies of such documents.

Comment 19 The first page of the grant agreement clearly lists applicable HUD rules and
           regulations. Based on our audit fieldwork, it was apparent that the Council failed
           to become familiar with the applicable rules and regulations. Therefore, the
           Council executed its grant without knowledge of financial and documentation
           requirements.

Comment 20 The Council’s comments have been incorporated into the audit report and aspects
           of the report have been modified. However, the OIG clearly stated to the Council
           that, to be considered in the final audit report, documentation was to be received
           with the written comments. During the exit conference, the OIG listed what level
           of documentation was appropriate to address the audit findings.

Comment 21 The Council is correct in the terminology used. However, the Council is incorrect
           in interpreting the grant agreement in very loose terms. The Council goes so far
           as to use the dictionary for definitions. The goals and objectives are an agreed to
           set of milestones that HUD is expecting to be accomplished with the grant money
           provided. The goals and objectives are not performance levels that HUD is
           hoping the Council achieves, rather they are expected. The terms “statement of
           work” is the same as goals and objectives. In both cases, HUD expects those
           goals/work milestones to be accomplished.

Comment 22 As stated in comment 21, the goals and objectives are HUD’s expectations as to
           what is to be accomplished. Comparing the actual accomplishments with the
           agreed to milestones is a standard way of measuring the Council’s grant
           performance. The Council did in fact report on its milestones and qualitative
           accomplishments. We disagree that our audit utilized an “all or nothing”
           approach. Rather, our comparison of accomplishments versus goals was only one
           part of our review. As stated during the exit conference, we scrutinized the
           documentation to see behind the numbers and identify trends or irregularities. As
           stated in finding 2, we found numerous deficiencies that illustrate ineffective and
           inefficient grant operations.

              While the Council claims that the Council largely met its goals and objectives, we
              found it did not meet its most important goal (home visits) and did not execute the
              grant effectively or efficiently (finding 2). Funds are being denied and/or
              withheld because the Council could not provide adequate supporting
              documentation or costs were determined to be ineligible. Our findings regarding
              the allowability of costs are separate and distinct from our finding on grant
              performance.




                                               74
Comment 23 Once again the Council misrepresented the words of an OIG Auditor. The OIG
           Auditor was merely stating that he understood what Mr. Boutin was trying to say
           and in no way was giving his concurrence. The Council is looking at finding 2 in
           individual separate parts instead of as a whole. Finding 2 does identify those
           accomplishments that were met. We did not laud the Council’s accomplishments
           because our audit work found the work was rushed, at times duplicated, and not
           effectively managed. While the claimed accomplishments might have been
           somewhat appealing on paper, they are less than desirable given what was
           actually accomplished.

Comment 24 HUD was not a primary funding source and therefore, must pay close attention to
           the way its grant monies were spent. We must make sure that the same level of
           attention and detail that is provided to the Council’s larger grantors is also
           provided to its smaller less significant grantors.

Comment 25 As stated in finding 2, while the Council met its “training session goals,” these
           goals are not very relevant to achievement of the overall grant goal of community
           outreach and education. Attendees at these training sessions could consist of
           more than 30 people or as few as three people. Accordingly, the goals related to
           the number of persons fully trained is of far greater importance as once trained,
           they are the primary means for conducting the principal grant objective, education
           and outreach programs in targeted counties.

Comment 26 Given the Council’s varying levels of performance and its poor performance in
           the first two years of the grant, there is no way of knowing which goals would
           have been met. As stated in Comment 4, the Council is the party responsible for
           truncating the performance period.

Comment 27 The number of people attending training sessions was counted based on sign in
           sheets provided by the Council. The Council did not have a uniform sign-in sheet
           and used a number of different formats throughout the grant period. Certain sign-
           in sheets were for three combined training sessions/topics, others were for one
           single session/topic. We did give credit for those training sessions where the sign
           in sheets explicitly showed that the training sessions covered all four HUD related
           training sessions.

Comment 28 We counted every home visit recording chart provided to us by the Council. To
           get a clear picture of the grant performance during the grant period, we excluded
           those home visits to families that occurred outside the grant period of March 15,
           2001 through March 14, 2004.

Comment 29 The Council is incorrect in stating we did not count 56 home visits. The 1399
           total eligible home visits include the 56 home visits. The table on page 18 of the
           report has been modified to provide a clearer understanding.




                                              75
Comment 30 We disagree with the Council’s characterization of persons attending the same
           training more than once as isolated incidents. We identified 163 instances of
           persons attending the same training session/topic more than once.

Comment 31 Per the grant agreement under “A. Intervention Strategy”, home visits will be at
           their most intensive level of service with one-hour weekly visits. Any visits made
           less than a week apart are not ideal as it makes tracking long term behavioral
           changes less significant. Had the grant been executed throughout the three years
           and not rushed in the third year, visits made less than a week apart would not have
           been needed.

Comment 32 Given the description provided by the Council at the exit conference, in their
           written comments, and during the audit, we have determined that the distribution
           of materials is no longer a failed grant goal. While we believe the Council could
           have done a better job documenting when and where educational materials were
           distributed, we agree that it is too cumbersome to require or mandate every
           instance to be recorded. We find the quarterly reports and examples of materials
           used to be sufficient and have revised our report accordingly.

Comment 33 We did not include the teleconferencing goal as a failed goal in the discussion
           draft report. The table in the audit report shows this as an accomplished goal.

Comment 34 The flurry of activity was caused by the Council’s lack of grant execution in the
           first two years of the grant, thus the need for a high risk letter. Without the high
           risk letter, who is to know what the ultimate accomplishments would have been.

Comment 35 We find that the comments provided by the Council provided little to change our
           second finding of the draft audit report. While we did change the distribution of
           materials from a failed goal to an accomplished goal, all other aspects of the
           finding remain the same. The Council performed well on paper, but when we
           looked into the grant execution and performance evidence, we found the Council
           did not adequately achieve its grant objectives.

Comment 36 While the OIG did not execute the grant agreement with the Council, we
           consulted HUD Office of Healthy Homes and Lead Hazard Control staff when
           reviewing the $500 AmeriCorps fee charges.

Comment 37 The Council is incorrect in saying neither HUD nor the OIG were told by the
           Council how it interpreted the $500. In fact, the OIG received the general ledgers
           and an AmeriCorps fee calculation worksheet that showed explicitly how the
           Council interpreted and calculated the $500 fee. In addition, meetings with
           Council management provided further concrete details as to how the $500 was
           calculated and charged to the grant. While the Council may have understood the
           $500 to be a fee for training, we disagree with its method of calculating the
           amount of fees earned.



                                               76
Comment 38 Again, the Council incorrectly assumes the OIG had no actual knowledge of the
           Council’s interpretation. The Council incorrectly assumes that since HUD
           approved payment of vouchers, the associated costs are all allowable. Rather, all
           costs are subject to review by HUD and the OIG. One of our audits objectives
           was to determine if costs were charged according to the grant agreement and other
           federal rules and regulations. As such, it is within the OIG’s authority to question
           costs even after payment has been approved.

Comment 39 The Council’s legal representation has provided a skewed view of the OIG’s
           words and interpretation. While the grant agreement does not specifically contain
           verbiage regarding the $500 AmeriCorps fee, the agreement does contain an
           approved budget that includes a total amount of $495,000 (revised down from an
           original $600,000). The total amount was derived from the verbiage in the grant
           application. We found it entirely appropriate to look to the grant application to
           seek guidance as to how the $500 was described and calculated. Aside from the
           evidence previously stated, we found the application to be more than adequate to
           give insight as to the original intention. The current HUD grants officer and HUD
           representative concurred that the $500 would not be appropriate if charged per
           individual, per each training session attended.

              The grant application set aside $675,000 for AmeriCorps fees, listed under direct
              labor. The reductions from the application to the agreement were due to HUD’s
              approval of a grant amount less than what was requested. The grant application
              clearly states that the $500 fee was for “total compensation” for members in the
              program. The application continues to state “Only $675,000 or $500 per
              AmeriCorps member is being charged to the grant”. The previous two statements
              give a clear and concrete indication that the Council was entitled to only $500 per
              AmeriCorps member.

Comment 40 The Council is incorrect in assuming the OIG has decided to incorporate the
           application as part of the agreement. We merely looked to the application for
           guidance as to how the $500 was originally derived by the Council.

Comment 41 See comment 40 regarding the inclusion of the application into the agreement.

Comment 42 The term “cycle” was merely used during the exit conference to clarify the
           explanation to the participants. The grant agreement clearly indicates what is
           expected of AmeriCorps members involved with the HUD grant. AmeriCorps
           members participating in the HUD grant fall into two categories: home visitors
           and family resource center participants. Both types of AmeriCorps members are
           required to be fully trained before conducting community education and outreach.
           The grant agreement clearly states, “Home visitors will be trained in specific
           curricula in lead poisoning, home environment hazards....second hand smoke, and
           asthma.” The grant agreement states that home visitors will “...act as personal
           trainers in each of the four topics.” Regarding family resource centers, the



                                              77
              agreement states, “all staff, including AmeriCorps members and VISTA
              members, will be trained as trainers in each of the four target areas: lead
              poisoning, home environment hazards, second hand smoke, and asthma.”
              Clearly, the grant agreement laid out stipulations that both home visitors and
              family resource center aides were to be fully trained in order to conduct
              community outreach and education.

Comment 43 We disagree with the Council’s interpretation. While the Council provides a
           theoretical explanation, actual practices again prove the Council’s interpretation
           incorrect. The HUD grant consisted of four, not three, training topics. In
           addition, three of the training topics were bundled into one training session. We
           find it impractical and wasteful for the Council to work under the impression that
           HUD was to pay $500 per training session attended, when the $500 was not going
           to AmeriCorps members as part of a stipend or salary, but directly to the Council
           as a fee for training (which was put-on by subcontractors whose billed costs were
           charged to the grant separately).

Comment 44 While we disagree with the Council’s interpretation, we acknowledge that two
           sets of AmeriCorps workers did exist: home visitors and family resource center
           aides. Therefore, we have modified the report and our analysis of the $500 fee,
           which remains as a per member fee, to include both home visitors and family
           resource center aides.

              Given the analysis in comment 42, we find that it is reasonable to allow the
              Council to receive payment for those AmeriCorps members, both home visitors
              and family resource center aides, who completed all four training topics: asthma,
              second hand smoke, home environment, and lead based poisoning. Using training
              sign-in sheets and the AmeriCorps roster, we determined there was a total of 144
              AmeriCorps members that received training in all four required topics. Using the
              144 eligible AmeriCorps members, we conclude that the Council is eligible to
              receive $72,000 in AmeriCorps fees. The first finding and associated
              recommendation has been modified in the report to reflect this change.

Comment 45 See comment 38.

Comment 46 See comment 44.

Comment 47 We disagree that our conclusions were based on incomplete data. In fact, we have
           home visit recording charts that run well past the end of the grant period (March
           14, 2004). However, we only included home visits that were conducted within
           the grant period, as this would provide a complete view of the Council’s
           performance during the grant period.

Comment 48 See comment 44.




                                               78
Comment 49 The Council failed to provide additional documentation to show that charges from
           Performance by Design are allowable and allocable. The Council provides
           exhibit one as evidence indicating the allowability of costs charged by
           Performance by Design. While the descriptions given in exhibit one are HUD
           related, the Council has yet to document the necessity of the contract. The
           Council identifies Performance by Design as being responsible for their quick
           turnaround in year three. However, the high risk letter, HUD’s continued
           involvement, and the severity of the Council’s nonperformance in the first two
           years appear to be the likely causes of the quick turnaround and urgency to
           complete the grant.

              As it stands, the Council failed to notify HUD of the contract with Performance
              by Design, rendering it ineligible. Additionally, many of the services performed
              by Performance by Design were tasked to other contractors. All trainings
              required under the grant were already contracted to outside agencies. Given the
              failure to notify HUD as required, and the existing contracts with two training
              agencies and an evaluation services firm, we maintain the costs by Performance
              by Design are ineligible. The Council has not provided enough evidence to
              indicate charges by Performance by Design are eligible grant costs.

Comment 50 An interview with another Council employee indicated that many people within
           the organization were contributing with the collection of evaluation tools.

Comment 51 See comment 49.

Comment 52 The OIG provided a detailed explanation to the Council of what was
           documentation was required to support costs charged by the Sacramento
           Department of Health and Human Services, American Lung Association, and
           Minicucci Associates. In addition to the existing invoices, the Council was to
           obtain supporting documentation for each budgetary line item, linking the cost
           charged to the grant to actual services provided. Office of Management and
           Budget Circular A-122 states that subcontracts are also subject to Office of
           Management and Budget mandated cost principles. Clearly, the invoices alone
           for the above mentioned contractors are not sufficient documentation to determine
           allowability.

              While the Council did provide explanations as to work accomplished by all three
              agencies, the Council failed to obtain and provide the OIG with documentation
              linking services provided with costs charged. Supporting documentation is
              crucial to ensure the Council, and in turn HUD, was not over billed, double billed,
              or billed for services that were not HUD grant related. Without supporting
              documentation clearly linking charges from the three contractors to services
              provided, the costs remain unsupported.




                                              79
Comment 53 See comment 52. While the Council claims a budget was included in the original
           CAP contract, the budget was not given to the OIG when requested. However,
           the budget alone would not determine allowability. Supporting documentation
           linking services completed with costs charged is still needed.

Comment 54 While the OIG has given the Council numerous opportunities and over eight
           months to provide supporting documentation for costs related to the three primary
           subcontractors, the Council has failed to provide such documentation. To
           determine allowability for all three contractors mentioned in comment 52, the
           Council will need to provide supporting documentation (i.e. Contractor
           timesheets, contractor invoices for travel and supplies, and other documentation
           that details the costs charged in the invoices provided to HUD) that clearly and
           directly links costs charged in the contractor invoices to the HUD grant. Simply
           providing a budgetary line item breakdown of costs is not sufficient.

Comment 55 We commend the Council in taking corrective action in upgrading its financial
           management systems and organizational capacity.

Comment 56 Neither the report, nor the OIG, take the position that only three employees were
           allowed to work on the grant. However, the original and revised budgets only
           allocated HUD grant money for the three positions specified in the grant
           agreement.

Comment 57 While the Council did provide timesheets, each timesheet was very vague and
           uninformative. The timesheets failed to allocate time based on activity and did
           not conform to Office of Management and Budget Circular A-122.

Comment 58 The Council claims only thirteen persons worked on the grant; however, through
           the general ledgers and the Council’s expense details, we determined that the
           Council charged time for 14 persons and two categories (other and temporary
           staff). Therefore, we arrived at 16 different “persons” whose time was charged to
           the grant. The Council provided an explanation for each employee and how they
           were critical to the grant. However, the explanation does not take away from the
           fact that each person charged time to the grant without adequate supporting
           documentation.

Comment 59 The affidavit found in Exhibit 4 of the Council’s comments is not sufficient. The
           signed affidavit itself is simply based on recollections of the former Deputy
           Director of Finance and Operations. The affidavit is accompanied by excel
           spreadsheets, created by the Council, with the total hours and salary amount
           charged by each employee on a per month basis. The spreadsheet also contains a
           calculation for fringe benefits. However, the spreadsheet itself is unsupported and
           is not sufficient to determine allowability. Office of Management and Budget
           Circular A-122 clearly illustrates what is required to support direct labor charges.
           Short of time records or a time database, the salaries remain unsupported.



                                              80
Comment 60 The Council is requesting specific reference as to what invoices and checks
           comprise each of the line items in question on page 14 of the report. However,
           the Council was notified prior to the exit conference and during the exit
           conference that its written comments were to include supporting documentation,
           if applicable. The Council should have requested the additional information prior
           to submitting its written comments to allow for it to review the questioned
           expenses prior to drafting its written comments. However, OIG will provide
           information needed to clarify any questions during the audit resolution process.

Comment 61 All direct charges, including travel, must be accompanied by adequate supporting
           documentation to support the charges. The Council failed to submit receipts and
           invoices to support travel expenses.

Comment 62 After reviewing the Councils comments, we have concluded that two changes to
           the draft report are warranted: 1) the Council is entitled to $72,000 of AmeriCorps
           fees, rather than the $17,000 set out in the discussion draft report, and 2) the
           Council achieved its goal of distributing materials to family resource centers. All
           other findings and conclusions remain the same.

Comment 63 The Council is correct in stating that the report could be revised in light of newly
           discovered/submitted supporting documentation. However, we found the
           Council’s comments to be lacking the material documentation needed to support
           costs and its performance claims. While we appreciate the Council’s efforts in
           meeting the comments deadline, we find that the comments were not sufficient to
           modify the report except as stated in comment 62.

Comment 64 The HUD representative calculates the scores based on documentation submitted
           by the Council. Government time and money limitations do not allow HUD
           representatives to scrutinize documentation to the fullest extent. However, the
           OIG is tasked with making sure government funds are spent in an efficient and
           effective manner. Our audits include a detailed review of documents and other
           information to identify instances of waste, fraud, and abuse, and to meet our
           established audit objectives. For this reason, our review is a great deal more
           detailed and in depth than those conducted by HUD representatives. Therefore,
           while the Council may have received a good rating from HUD, our review
           indicated there were significant problems with the way funds were expended, the
           way expenses were documented, and the way the grant was executed.

              While the Council met most of its goals on paper, we found the goals that were
              met (training sessions conducted) were of limited importance compared to the
              home visits and families reached goals which were not effectively attained. In
              addition, as stated in the report, the Council executed the grant in an inefficient
              and ineffective manner, allowing duplicate training sessions to be completed by




                                               81
              the same person, less than timely home visits, and limiting its grant activities
              primarily to Sacramento County rather than throughout the 17 counties targeted in
              its grant agreement.

Comment 65 Our findings, both monetary and non-monetary, are meaningfully related to the
           Council’s performance. We found deficiencies with the way funds were
           expended, the way expenses were documented, and the way the grant was
           executed. See comment 64 above. While we acknowledge the importance of the
           President’s remarks, we also realize that those remarks are not intended to allow
           for undocumented spending and noncompliance with grant rules and regulations.




                                             82
Appendix C

                                      CRITERIA
A.   Regulations at 24 CFR [Code of Federal Regulations] Part 84 establish uniform
     administrative requirements for federal grants and agreements awarded to institutions of
     higher education, hospitals, and other nonprofit organizations.

B.   Office of Management and Budget Circular A-87, section C, subparagraph 1.j,
     requires all costs to be adequately documented.

C.   Office of Management and Budget Circular A-110, subpart C, section .21,
     paragraph b, subparagraph 2, requires recipients’ financial management systems to
     provide for the following: records that identify adequately the source and application of
     funds for federally sponsored activities. These records shall contain information
     pertaining to federal awards, authorizations, obligations, unobligated balances, assets,
     outlays, income, and interest.

D.   Office of Management and Budget Circular A-110, subpart C, section .21,
     paragraph b, subparagraph 7, states that recipients’ financial management systems
     shall provide the following: accounting records, including cost accounting records, that
     are supported by source documentation.

E.   Office of Management and Budget Circular A-110, subpart C, section 25, paragraph
     c, subparagraph 8, requires recipients to request prior approval from HUD, unless
     described in the application and funded in the approved awards, for the subaward,
     transfer, or contracting out of any work under an award.

F.   Office of Management and Budget Circular A-110, paragraph C, subparagraph 45,
     states that some form of cost or price analysis shall be made and documented in the
     procurement files in connection with every procurement action.

G.   Office of Management and Budget Circular A-122, attachment A, paragraph 2,
     subparagraphs a-g, state that to be allowable under an award, costs must be reasonable
     and allocable for the performance of the award; allocable thereto under these principles;
     accorded consistent treatment, determined in accordance with generally accepted
     accounting principles; and adequately documented.

H.   Office of Management and Budget Circular A-122, paragraph 3, subparagraph b,
     states that all cost reimbursement subawards (subgrants, subcontracts, etc.) are subject to
     those federal cost principles applicable to the particular organization concerned. If a
     subaward is to a nonprofit organization, Circular A-122 shall apply; if a subaward is to a




                                             83
     commercial organization, the cost principles applicable to commercial concerns shall
     apply; if a subaward is to a college or university, Circular A-21 shall apply; if a subaward
     is to a state, local, or federally recognized Indian tribal government, Circular A-87 shall
     apply.

I.   Office of Management and Budget Circular A-122, attachment A, section E,
     paragraph 2.b, requires a nonprofit organization which has not previously established an
     indirect cost rate with a federal agency, to submit its initial indirect cost proposal
     immediately after the organization is advised that an award will be made and, in no event,
     later than three months after the effective date of the award.

J.   Office of Management and Budget Circular A-122, attachment A, section A,
     paragraph 3-3.a, states that in determining the reasonableness of a given cost,
     consideration shall be given to whether the cost is of a type generally recognized as
     ordinary and necessary for the operation of the organization or the performance of the
     award.

K.   Office of Management and Budget Circular A-122, attachment B, section 7,
     paragraph m, subparagraph 1, requires charges to awards for salaries and wages,
     whether treated as direct costs or indirect costs, to be based on documented payrolls
     approved by a responsible official(s) of the organization. The distribution of salaries and
     wages to awards must be supported by personnel activity reports, as prescribed in
     subparagraph (2), except when a substitute system has been approved in writing by the
     cognizant agency (see subparagraph E.2 of attachment A).

L.   Office of Management and Budget Circular A-122, attachment B, section 7,
     paragraph m, subparagraph 2, requires employee time reports maintained by nonprofit
     organizations to meet the following standards: (a) the reports must reflect an after-the-
     fact determination of the actual activity of each employee (budget estimates (i.e.,
     estimates determined before the services are performed) do not qualify as support for
     charges to awards); (b) each report must account for the total activity for which
     employees are compensated and which is required in fulfillment of their obligations to
     the organization; (c) the reports must be signed by the individual employee or by a
     responsible supervisory official having firsthand knowledge of the activities performed
     by the employee, stating that the distribution of activity represents a reasonable estimate
     of the actual work performed by the employee during the periods covered by the reports;
     and (d) the reports must be prepared at least monthly and must coincide with one or more
     pay periods.




                                              84
Appendix D

SCHEDULE OF INELIGIBLE AND UNSUPPORTED EXPENSES
                                         Reimbursed Drawdowns




Note: The $150,000 grant advance received on September 12, 2001, was not applied to grant expenses until late
October 2004


                                                       85
                                          Rejected Drawdown




Note: The Council charged $571,352 against the HUD grant; however, it requested reimbursement for $421,352
after applying a $150,000 grant advance received on September 12, 2001.



                                                     86
Appendix E

GRANT AGREEMENT: STATEMENT OF WORK




                     87